The Enclave Economy

Foreign Investment in Mexico's Silicon Valley

Kevin Gallagher looks at Mexico's high-tech industries to determine whether NAFTA met its economic, social, and environmental promises, finding mixed results. Foreign investment can generate growth and spillovers in the domestic economy, though Mexico was hampered by China's entry to the WTO and the rise of contract manufacturers that shift production quickly. Gallagher draws the lesson that FDI is not an end in itself, that it needs to be complemented by strategic domestic policies, and that trade agreements should give developing countries flexibility on par with what they already have at the WTO.

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